Union International: Inflation headed in the “wrong” direction wasn’t enough to spur the Bank of Japan to boost stimulus.
Union International: The Bank of Japan has ignored analysts’ and economists’ calls for a boost inits already huge quantitative easing program despite inflation numbers heading in the opposite direction to the policymakers’ targets.
The central bank voted 8-1 to hold fire on building on the current pledge of increasing base money supply at a yearly pace of ¥80 trillion ($659 billion). The Bank remains under heavy pressure to meet it and Prime Minister Shinzo Abe’s inflation target of 2% a year particularly as the effects of the sales tax hike from 5% to 8% early in 2014 still weigh on consumer and corporate spending.
“The calls for more QE are growing louder the further away from the 2% target the inflation data gets. As of January’s data, they’re at 0.2% a situation exacerbated by the global collapse in oil prices,” explained Solomon Roth, chief economist at Union International.
The voting members at the BoJ have a tendency to surprise markets with unexpected decisions like that which expanded the QE program in October last year, the first time it had been increased since it was first launched in April 2013.
“The fall in oil prices means that the country spends much less on importing fuel which has a big impact on inflation because they rely on imports for most of their energy in the years following the nuclear incident at Fukushima,” explained Roth.
Union International says it has not altered its stance on Japanese equities and cited the expectation of more QE in the months ahead as primary justification for entering the market even at current elevated levels.
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